The above graphic is based upon a graphic that I found here. But it’s been reworked to put a bit of focus on the fact that the whole point of the enterprise is to promote human flourishing.
Tracing out the flows:
- Labor – Households supply the labor force—people
- Corporations – And businesses consume the labor force to combine with raw materials to produce goods that are sold through the domestic market to households, government, businesses and foreign markets.
- Inflow
- Sale of stock – sale of ownership in the company through the sale of stock typically through the Financial Market.
- Sale of goods and/or services which is the primary source of income and defines the purpose of the company
- Government subsidies – Trade tariffs to protect markets, Incentives for economic behavior that the government wants to encourage: solar panels, net zero emissions, etc.
- Profits [the difference between what it cost to produce the goods and services and what they were sold for] Reflected in corporate investment and dividends
- Outflows – Get’s distributed 3 ways, as
- Wages to pay for the labor, which funds households
- Taxes to the government, for providing protection and financial services and infrastructure
- Investments – Dividends to shareholders (they might also invest in other companies) and they invest in themselves with expansion, productivity improvements, etc.
- Inflow
- Households – have similar flows to corporations
- Inflows
- Wages are generally their primary source of income
- Investment Dividends
- Government subsidies: Tax rebates, Stimulus rebates, Medicare/Medicaid, Social Security, etc.
- Outflows
- Consumption – the purchase of goods and services, this consumes the bulk of most households income
- Taxes – generally taken out of one’s wages by the corporation and paid to the Government
- Investments – excess wages or savings that are saved in 401k, CD, Money Markets or Corporate stock
- Inflows
- Government
- Inflows
- Taxes
- Borrowing – Through the sale of treasury bonds
- Outflows
- Government subsidies
- Government services – Defense, Federal reserve, interstate highway system, Federal judiciary, etc. (There are thousands of these.)
- Interest – to pay the cost of government borrowing.
- Inflows
- Foreign countries will have similar economies and they interface with the economies of other countries through
- The financial markets
- And through the buying and selling of goods and services through imports and exports
- Note: All nodes that are gold filled represent markets and thus constitute a “Market Economy”
We begin with the concept of “human flourishing” which may be defined as those processes, artifacts and products that promote the welfare and advancement of humankind. It is the role and goal of society and governments to promote the welfare and advancement of a people. In some cases that group of people may be rather small relative to the total population, this is typically what is found in nations ruled by dictators or oligarchies, of which North Korea would perhaps be one of the better examples. The better a society is able to distribute the gains of industry and culture to all it’s members the more effective it is in promoting human flourishing. To the degree there are inequitable disparities, poverty and suffering there is still work to be done.
Also, of particular importance in all this is the concept of “value”. Goods, services, utilities all have value because they contribute towards human flourishing.